Viktor Orban, Hungarian Prime Minister and also president of the governing Fidesz party, at a rally in Mezokovesd, Hungary April 2 2014

MTI/MTVA Szilard Koszticsak

The incumbent Fidesz party is widely expected to win Hungary’s general elections handily on Sunday, possibly matching its current two-thirds majority in parliament. Since it took over government in 2010, the party has tightened its grip on the country’s legal system and economy, picked fights with the European Union with a new constitution that critics say limits basic rights and imposed a statist economic policy, much to the consternation of the European Union and foreign investors. Here is a look at what analysts say a second consecutive four-year term in power could bring:

Eurasia Group: Fidesz Win Would Be Investor-Negative

With a feeble center-left opposition, Fidesz looks likely to win the election and “that means more negative news for Hungary and for investors,” said Eurasia Group analyst Mujtaba Rahman. Eurasia gives Fidesz a 50% chance of getting another supermajority.

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“Another supermajority will serve to validate Fidesz’s dismantling of checks and balances since 2010 and likely push the political system further toward centralization,” Mr. Rahman added. Even without a Fidesz supermajority, Hungary’s macroeconomic conditions will remain mixed and could cause “the business environment to deteriorate in the short, medium and long term.”

Attila Mesterhazy, Hungarian Socialist party president and also prime minister candidate of the leftist opposition parties’ alliance

MTI/MTVA Lajos Nagy

SocGen: Simple Fidesz Majority Would Be Positive

The election surprise at this point may well be if Fidesz only manages to win a simple majority, which would be a marked positive for market confidence and for Hungarian assets, as it “means that Fidesz would be unable to ram through legislative changes with impunity,” Societe Generale economist Phoenix Kalen said.

“Investors remain uncomfortable with Orbán’s increasingly autocratic rule, his philosophical turn away from Western Europe, his administration’s ad-hoc style of policy-making, frequent changes to the country’s constitution, election promises of further bail-out packages for households with foreign-currency mortgages, penalizing treatment of targeted private sectors, and the accompanying erosion of business confidence and private investments,” Ms. Kalen added.

BBH: Fiscal Stringency May Prove Hard

“Markets dislike Orbán and his Fidesz party for its confrontational posture with the European Union and the financial system in the past, which included arbitrary taxes on various industries, hurting utility companies by cutting energy costs, undermining the central bank independence, forcing the early retirement of judges who don’t conform to the party’s views,” said Brown Brothers Harriman economist Win Thin.

All that said, it is undeniable that Hungary’s economic fundamentals are on good footing, and improving in many aspects. Inflation is low, growth is picking up, unemployment is falling, and the current account is moving further into surplus.

Hungarian opposition party Egyutt-PM leader and also former Prime Minister Gordon Bajnai with Agnes Somfai, a local candidate, in Budapest April 3 2014

MTI/MTVA

“An argument can be made that the Fidesz choices are just standard populism and that their true costs will not surface for years to come –but when they do surface, history will be re-written,” he added.

BNPP: More Orthodox Policies To Come

BNP Paribas expects Hungary’s government policies to become more “orthodox”—conventional–and less confrontational if Fidesz wins. The main challenge for the government after the election will be to keep the Hungarian economy growing and maintain a prudent fiscal stance in order to reduce the country’s public-sector and external debt, BNPP economist Michal Dybula said.

“The key to maintaining a robust investment climate will be policy predictability, which has proved to be a significant obstacle in 2010-2014,” he said. Embarking on a tighter monetary policy stance is a challenge for 2014, he added.

Nomura: Euro Adoption by End-2018 Unlikely

Under Fidesz, a streak of nationalism has become deep-rooted and euro-adoption at the end of its next parliamentary period–2018–looks unlikely, said Nomura economist Peter Attard Montalto. There will be low growth but higher inflation, with foreign-currency debt reform probably the biggest area of uncertainty for markets.

The key will be if–in order to pay for personal income tax and small and medium-size companies’ tax cuts–there are additional changes to the special taxes levied on larger companies, keeping policy uncertainty high for foreign direct investors, he added.

Expect an increase in the amount of government debt held by locals: Fidesz will want more bank assets domestically owned and more key utilities and infrastructure to end up in domestic hands.

Hungarian opposition party Demokratikus Koalicio president and also former Prime Minister Ferenc Gyurcsany at a rally in Budapest March 30 2014

MTI/MTVA Laszlo Beliczay

Deutsche Bank: More of the Same

Fidesz’s election program includes a consolidation of policies introduced in its current term, and the continuation of intervention in the banking and energy sectors. “These policies will not be viewed positively by foreign investors and could worsen the investment climate,” said Deutsche Bank economist Gautam Kalani.

A supermajority would also enable Fidesz to make further amendments to the constitution, including altering the electoral system, which would be difficult to reverse in the longer term, Mr. Kalani added. On the fiscal front, there may be some slippage but the budget deficit is likely to remain below the 3% of GDP threshold, he said.

“We seriously doubt that the next four years will be as eventful as the last four,” said Morgan Stanley economist Pasquale Diana. It seems likely to us that Fidesz will continue to put downward pressure on regulated energy prices, and seek a larger role for the state to play in the energy sector, which could hamper investment. We see no case for Fidesz to indicate a preference for a weaker Hungarian forint,” Mr. Diana said, citing that currency strength is no obstacle to exports, a weak forint policy would be hard to control and that the government is still heavily indebted in forints.

Hungarian far right Jobbik party leader Gabor Vona at a rally in Mezokovesd, Hungary March 29 2014

MTI/MTVA Janos Vajda

4Cast: Risk of Weaker Forint

Financial markets will regard a two-third majority election victory as slightly more negative than a simple majority, said 4Cast economist Gábor Ambrus. “Risks remain that the government–in tacit cooperation with the National Bank of Hungary–would continue to want to keep the forint on the back foot in order to kick start growth and we think that any solution for a drastic reduction in the remaining household foreign-currency debt level would point to this direction.”

Citi: Would Fidesz Team With Far Right?

A potential source of surprise could come from Fidesz failing to win a simple majority in parliament, which may force it to seek coalition with the far-right Jobbik party–a clearly unwelcome event for markets, said Citigroup economist Eszter Gárgyán.

Over the next four years, Hungary’s economic growth may continue to benefit from firming European growth, slowing deleveraging, and the country’s accelerated absorption of European Union support funds. But interventionist government policy could keep Hungary’s growth prospects weak relative to its regional peers, Citigroup said.

Comments (5 of 9)

Anyhow, the people have spoken. Vox populi vox dei: people prefer the Fidesz leadership and their policies.

8:40 am April 7, 2014

Bandi wrote:

Just like heavily defeated opposition party leaders gyurcsany and mesterhazi, you are also unable to accept such another heavy leftwing defeat ms feher. Fidesz 'picked fights with the European Union with a new constitution that critics say limits basic rights and imposed a statist economic policy,'? Get your facts straight, the EU was the one who started the 'fight', not Fidesz. The new 2012 constitution gave Hungarian citizens MORE rights than the previous Stalinist one forced into place in 1947, like the right to physical defense of self and property so whoever thinks this is a bad thing will also have to take issue with the constitutions of other liberal western democracies that have this very important basic tenant. The 2012 constitution also removed the 1947 right of the government to shut down newspapers or media organisations without warning or reason, so again, you and the critics have your facts wrong ms feher. Or are you such a hardcore leftish bolshi that you actually WANT Hungary to return to the Stalinist 1947 version just so the EU can say that Hungary doesn't have a 'modern, European constitution' like it did when the 2012 one was enacted?

12:37 am April 7, 2014

whatdoesthefoxsay wrote:

I think 2/3 for Fidesz shows not the real picture. Lot of people has problems with the system. From the results looks like goverment still better then the liberals / so called socialists previous one. Bajnai was right, they must reform themselves. Some people should go into the background / retire.. I think this problem also true for Fidesz, they might see it, or not - or they must show a clear growth and democracy.

11:53 pm April 6, 2014

@Dodona wrote:

Typical socialist lies. Here is news for you: government retirement liabilities are in forints not in euros. The rest of your numbers are fake too.

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